Libertarian tax ideas

Terje has recently blogged about his submission to the Henry Tax Review and has encouraged other libertarians to make a submission. His ideas were (1) indexing the tax-free threshold; and (2) tax-free re-investment of profits by businesses.

The Australian Libertarian Society (ALS) will also be making a submission. We first want to ask all members and readers to contribute their ideas (in the comments section here), and I will then collate these ideas into a short document as the ALS submission to the Henry Tax Review.

I’m not going to spend days working on this (unless somebody pays me) so please keep your suggestions (and the reason for your suggestion) brief and to the point. I won’t necessarily be able to include all the ideas, especially if some of them conflict with each other.

If you want to make a personal submission to the Review, the deadline is 1 May 2009.

111 thoughts on “Libertarian tax ideas

  1. Assuming they don’t adopt 30/30…
    1. Triple the TFT and index it
    2. Implement a revenue-neutral carbon tax
    3. Abolish corporate tax
    4. Abolish payroll tax
    5. Equalise alcohol tax (preferably downwards) so it’s based on alcohol content, not value judgements about packaging or flavouring.
    6. Abolish the top rate of income tax

  2. also, ditch the welfare system. less overhead on Govt. resources, less demand, less taxes. oh yer, and people shouldn’t be forced to pay for others who can’t / won’t support themselves

  3. Personal income tax to be devolved to States (with open slather competition). Commonwealth to keep corporate tax. Payroll tax, land tax and capital gains tax to be abolished. Balanced budget rule each and every year and spending growth to be reduced to GDP less X rule should introduced. Commonwealth Grants Commission be abolished – States that want to secede be encouraged to go.

  4. * ALL taxes to be devolved to States;

    * Funding to federal government done according to treaties between states;

    * Any state can secede by referendum with 2/3 majority in that state.

  5. Good idea John.

    My contribution to a preamble.

    ~
    The Australian Libertarian Society (ALS) stands for and believes in the virtues of personal liberty. As such we advocate a substantial reduction in the rate of taxation levied on Australians with a shift away from empowering centralised government towards better empowering individuals and communities. A reduction in taxation would elleviate the burden of not only centralised government expenditure that may often be contrary to the personal preferences of individual Australians but would also reduce the substantial cost to all of us that is associated with the dead weight aspect of taxation. As a minimum general principle for reform the ALS proposes that tax revenue per capita should not increase passively but rather it should only ever increase following an active decision by parliament. As such the tax system ought to be structured and indexed in such a way so as to avoid any growth in tax revenue except for those explicit occasions when parliament, after careful consideration, may actively and conciously decide to increase the burden on Australian society.

    Below we outline some specific suggestions made by our members detailing ways in which the tax burden ought to be reduced and/or contained or else ways in which the system might be simplified and/or restructured to good effect.
    ~

  6. About 100 “members”, though we don’t engage with the membership other than through the internet (this blog & facebook).

    The board is myself, Terje & Jon Hoyle (aka pommy).

  7. Strawman on taxes was my first preference – but simply not a goer at all. (Even better, abolish the Commonwealth). I’m yet to convince a single person that’s a good idea. Whereas my (far) more limited idea does get people listening, if not always agreeing.

  8. Although I’d word it differently I also agree with Strawman. This approach to federal tax is what I call the EU model. The federal layer should be entirely dependent on the layer below for financial resources. In the EU this setup is very deeply institutionalised with any single nation state having veto power over any change to central tax powers (even within the proposed constitution that they are currently fighting over).

    I’d even prefer that Australian senators were appointed and recalled by state parliaments rather than being elected.

    Instead our federation works in an upside down manner with the central government having most of the tax powers and the state governments being dependent on it for finances.

    If the federal layer could be tamed in these ways I’d also propose that we have more states with NSW being a prime candidate for a carve up.

  9. From Roman days to the present the only successful states have been those where property rights were secure and taxes were very low.

    The resulting savings accumulate capital, which, when engaged in competitive production, increases supply at competitive prices.

    In such a society, the positions of entrepreneur are open to all citizens of both sexes.

    See my book titled “Understanding Person and Economic Liberty” available from http://www.copyright.net.au

  10. >> Remove income tax and penalty rates on all hours worked over 40 hours per week.

    As much I as hate to disagree with anyone advocating the reduction or removal of any tax, I feel compelled to point out the obvious flaw in this suggestion:

    As someone who is self employed (and works many more than 40 hours per week), I would pay myself $1 per hour for the first 40 hours and a $#!+load in ‘penalty rates’ after that.

    .. then again, maybe this is not a ‘flaw’ after all ..?

    🙂

  11. * Politicians entire salary subject to highest tax bracket.
    * Abolish capital gains tax
    * If capital gains tax isn’t abolished, at least exempt sale of private business… it’s pretty sucky that I can build a business from scratch, creating jobs and paying all sorts of taxes along the way, and then when I sell, the whole amount is subject to capital gains tax 😦
    * Just have income tax and GST… get rid of all the others – it’s too complicated.

  12. @ Strawman
    I too am self employed and do not have a wage calculated on hourly rates because I draw money directly from the business. If I changed from a partnership to company then it would be different but then you will have award issues.

    The reason for this change is a direct stimulus of the manufacturing and mining sectors.

    If you went from working 8 hours a day to 12 hours then your take home pay increase would be more than 50 percent as the extra is not taxed.

    Employers would not pay penalty rates on this so it is cheaper for them to run longer shifts and the employee gets a large increase in take home pay.

    We currently have a GST so the government still gets to pick your pocket as you spend it.

  13. Eric – you could pay yourself a wage. You could tell the tax man you work 120 hours a week and lower the hourly rate accordingly. It would be a great way for the self employed to reduce their tax rate. 😉

  14. @ TerjeP
    The problem with that is self employed people in partnerships or sole traders do not have an award with an hourly rate. They have drawings which is taken directly from the business bank account.

    You would need to change to a company to become an employee and then all the company taxes would cost more than you would save by trying to cheat on your taxes.

    When you are audited by the tax office they will probably look at your deductions and contracts to see if they are commonly done that way in your industry.

    So for example you may purchase a piece of equipment on the 1st of June and pay 90% of its cost as a rental until the 30th of June and pay the 10% as a residual on the 1st of july then claim 100 % of the rental cost back on your tax.

    Is this usually done ? Not at all.

    My reason for the change of wages and tax is this will lower the fixed costs for an employer, once the costs are lowered the goods produced are more competitive on the open market.

    Increased demand for these goods will lead to an increase in production by hiring more workers and/or machine tools and automation.

  15. Testing (a rather long comment doesn’t seem to have gfot through).

    [ADMIN: comments with more than two links are put in auto-moderation. If they’re not spam, I approved them when I see them.]

  16. I’m going to try breaking that comment up.

    The two areas I think need addressing most are GST and income tax, with some related changes elsewhere.

    For GST, I would recommend:-

    – Option 3 of my “Nine economic options for Australia“: GST and BAS complications can be headed off by “composition”. Small businesses (defined by low turnover and by not being diversified) should be offered a substituted form of payment, based on a proportion of turnover. This proportion should depend on the category of the business, worked out by the bureaucracy from existing ABS figures to yield the same as the equivalent GST. (Clearly this is only possible when there is only one whole or main category of business activity.) Compliance should be monitored by the government, using modern statistical methods on the quarterly returns and initial statutory declarations about business category. Businesses dealing with these compounded payers would work with deemed embedded GST payments, to get their own business credit entitlements.

    – Option 4 of my “Nine economic options for Australia“: Employment can be boosted by allowing GST and compounded GST payers a discount… per full time employee per year… (This is based on the work of Professor Kim Swales of the University of Strathclyde and his colleagues, and my own independent work. It has to do with eliminating labour market imperfections with a Pigovian virtual subsidy – full reasoning may be found via those links. If the scheme is implemented by giving actual and potential employees anonymous transferrable vouchers to give employers, the Pigovian approach can start a transition to a Coasian one with no government involvement at all.)

    – Removing provisional payment of GST and even payment in advance, making it solely payable in arrears to eliminate the burden on working capital.

    – Paying interest on refunds and/or credits due on the disposal of fixed capital, to eliminate the burden on that.

    See also Determination of the 135th Victorian State Council of the Liberal Party, 12.10.02 (resolution no. 23, submitted by the St. Kilda Road branch).

  17. For income tax, I would recommend:-

    – Options 7 and 9 of my “Nine economic options for Australia“: Apply selective Income Tax cuts by age, with over 55s to pay a simplified [and much lower] flat rate… lowering the cutoff age for the Income Tax break [gradually over time]… (See also related changes below.)

    – Ideally (but unrealistically), eliminate income tax as such altogether, replacing it with a Save As You Earn (SAYE) scheme with people paying some 30 – 40% of gross income into a non-interest bearing fund and allowed to draw amounts above a target/cap. This cap should be set quite high up until a cut off age, then reset to zero for older people, with the cut off age being lowered gradually as described above. This phases out the burden while allowing the government to adapt, and gives everyone the same target while not giving people with lower incomes cash flow problems.

    For related changes, I would recommend:-

    – The rest of option 9 of my “Nine economic options for Australia“: Move back pensionable ages by one year for every two calendar years that pass [linking the changes to the changes in the income tax cut off age in an actuarially balanced way]. (This combination of changes heads off future funding problems with the age pension system while allowing people to provide for themselves.)

    – Option 5 of my “Nine economic options for Australia“: Apply a temporary revenue tariff (ideally to exports, and best of all to exports of primary products) to bridge the temporary GST shortfall. Hedge the currency changes, but only with respect to forward purchases of fuel… (This is rather than making up for the initial revenue shortfall of GST tax breaks by raising the rate of GST, as contemplated by Professor Kim Swales‘s work and my independent work. In our environment with a floating currency, it would work as a revenue/import tariff with minimal effects on the value adding chain within Australia. While it might be practical to phase this out over time and raise the GST rate to compensate, as in the pure GST tax break approach, it would be unwise to start with the pure approach in today’s economic climate; some firms and sectors would be faced with too great a shock for today’s conditions.)

    Many specific numbers would need to be finalised (ages, dates, amounts, percentages, etc.), so I would aim for getting these policies adopted in principle while setting up study groups to work those out. And, of course, this whole body of recommendations opens the way for more stuff down the track.

  18. My view of taxation:

    “But this theory of our government is wholly different from the practical fact. The fact is that the government, like a highwayman, says to a man: ‘Your money, or your life.’ And many, if not most, taxes are paid under the compulsion of that threat.

    The government does not, indeed, waylay a man in a lonely place, spring upon him from the roadside, and, holding a pistol to his head, proceed to rifle his pockets. But the robbery is none the less a robbery on that account; and it is far more dastardly and shameful.

    The highwayman takes solely upon himself the responsibility, danger, and crime of his own act. He does not pretend that he has any rightful claim to your money, or that he intends to use it for your own benefit. He does not pretend to be anything but a robber.

    He has not acquired impudence enough to profess to be merely a ‘protector,’ and that he takes men’s money against their will, merely to enable him to ‘protect’ those infatuated travellers, who feel perfectly able to protect themselves, or do not appreciate his peculiar system of protection. He is too sensible a man to make such professions as these.

    Furthermore, having taken your money, he leaves you, as you wish him to do. He does not persist in following you on the road, against your will; assuming to be your rightful ‘sovereign,’ on account of the ‘protection’ he affords you. He does not keep ‘protecting’ you, by commanding you to bow down and serve him; by requiring you to do this, and forbidding you to do that; by robbing you of more money as often as he finds it for his interest or pleasure to do so; and by branding you as a rebel, a traitor, and an enemy to your country, and shooting you down without mercy, if you dispute his authority, or resist his demands. He is too much of a gentleman to be guilty of such impostures, and insults, and villanies as these.

    In short, he does not, in addition to robbing you, attempt to make you either his dupe or his slave.” – Lysander Spooner

  19. Lysander Spooner sounds like one of the more interesting people around. Wasn’t he a US President, or was that just wishful thinking in ‘The probability broach’?
    And if he was a President, what did he do when in office?

  20. Eric – there is no company tax if there is no profit. It is not so hard to arrange for all excess earnings to be paid out as wages (to yourself). Been there done that.

  21. Hi Terje. Thanks for your response. I did not look into becoming a company as my accountant said there was no benefit for us.

  22. nicholas — Spooner wasn’t a US President. He was an individual anarchist of the late 19th century. Check my “chronology of libertarian ideas” post. The quote from Michael C is probably his most famous.

  23. How about killing provisional tax? This one seems more repugnant to me than income tax, even though I pay far more of the second. What type of a system taxes you before you’ve even earnt the money?

  24. Jason – if you come back – my preference is to eliminate the worst taxes (i.e most deadweight loss or total costs). Tariffs probably come third.

  25. Pingback: Henry Tax Review « The musings of an Australian libertarian in Washington DC

  26. I’m surprised that there has not been more discussion on the issue of using tax to modify/control people’s behaviour as I’d have thought that would have been an anathema to libertarians (it certainly is to me):

    http://www.news.com.au/couriermail/story/0,23739,24889366-952,00.html

    I think that as a general principle, governments should only raise taxes to fund those actions and services that are both necessary and fall within its ambit, and in what is generally perceived to be a fair manner. It should not raise taxes for any other purpose and must not impose taxes that are solely designed to modify the behaviour of people.

    Now what is necessary and within the government’s ambit is highly debatable (I’d suggest significantly less than current thinking among politicians), as is what is perceived to be a fair manner. However, I feel strongly that taxes on cigarettes and alcohol should be set at a level that is considered to be a fair contribution by smokers and drinkers to the government’s pot and not at a level designed to stop people from partaking in these legal activities.

    I think that another principle should be that no person should pay in tax more than half of what they earn (that includes income tax, GST, local authority rates). It just seems to me fundamentally wrong that any person should pay more, out of the money that their hard work and ingenuity have earnt, to the public purse than they take home themselves.

    Two more points, local authority rates should be paid out of pre-tax money and payroll tax should be abolished, generally a tax on employment and growth is a ridiculous notion but in the current climate it is madness.

  27. “…payroll tax should be abolished, generally a tax on employment and growth is a ridiculous notion but in the current climate it is madness”.

    Not only that, it should be reversed since there’s already a market imperfection pushing that way (the disconnect between the hire/fire decisions and the burden of funding unemployment benefits). That’s at the heart of my option 4 at comment 19 above. Professor Swales’s modelling indicates that not only would unemployment fall, GDP would increase (by about half as much, as a percentage).

  28. Hey Mark,
    Only two? :p

    If I had to choose, abolish the income tax absolutely and not too sure about the second. Probably the GST. 🙂

  29. I’d rate them in terms of deadweight loss, and strike them down in that order.

    Income tax is middle of the road and the GST fares better than most.

  30. I don’t understand the clamour for property taxes. We live on the sea view side of the street, and as a consequence, our contribution to the local authority pot is twice that of those who live on the mountain view side. It certainly doesn’t strike me as a fair way to decide who contributes what. At least with income tax I’m being asked to pay something commensurate with my ability, if not my willingness, to pay.

    I’d like to see fewer and simpler taxes, with a shift in balance to sales rahter than income, but I don’t think income tax is inherently a bad tax. Given that we have to pay some tax, I’d rather pay on something I have some control over, i.e. what I earn and what I pay. The value of our land is 3-4 times what it was when we bought just 6 years ago with the consequence that our rates have gone up horribly, certainly well in excess of our income. If our taxes were also based on our land value we’d be in serious strife.

  31. “Income tax is middle of the road and the GST fares better than most”.

    The particular downside of income tax is that it is both direct and personal. However, Pay As You Earn (PAYE) systems have somewhat alleviated this – as against which, the modern trend towards throwing compliance burdens on the tax payer has led to self-assessment, which reverses this.

    It is not true that the GST fares better than most, except in theoretical models that don’t match real life. In real life, it has huge compliance costs which not only don’t show up as money numbers under the models its advocates use but also affect different firms very differently. Furthermore, without proper adjustments (which we don’t have, and which also have a compliance burden) there is a burden on investment (fixed and working capital), which also acts differentially as between firms. These burdens are particularly bad under the Australian bureaucratic and legislative cultures – and they do work their way through as (hidden) dead weight.

    The only “low” cost approach I know is to print money and use it to buy up a small pool of revenue yielding assets (a portfolio or endowment); it is not tax as such, from a personal perspective, although it is much the same for economic analysis purposes. It has to be small so that it spreads its structural policing costs among other asset owners, so as not to disrupt free market effects that direct the use of the underlying resources, and so that the inflationary wealth transfer doesn’t cause serious dislocation (it isn’t quite a one off, because more purchases will be needed from time to time to rebalance the portfolio – making these purchases is a transfer of the financial risk). In aggregate it’s the equivalent of just seizing the assets, only doing that through inflation spreads the burdens away from previous asset holders.

    On a larger scale, an analogue of property taxes works. This involves charging firms on their commercial plant and premises on a sliding scale, with the rates per item derived by the government from regression analysis to GDP and desired yield (the number of people resident in a group of firms’ catchment area is a good proxy for this). The crucial point is that an individual firm’s tax will not correlate highly with how much it is producing, at least in the short term. This is actually what I would prefer as a carrying tax for the Kim Swales approach I described at option 4 of comment 19 above, and option 3 is effectively a simplified version of this for small firms. Long term, it would be possible to make further transitions and eliminate/engineer out the need for taxes on that scale.

  32. Forgive my naivity, I’m a world champion at paying the bloody things but not much of an expert in them other than how they effect me plus my own notions of what is fair and unfair.

    If a tax is levied on firms’ commercial plant and premises won’t that mean there tax would vary according to the whim of the government of the day such that when a firm is doing it tough in something like the current climate, there tax could still rise if the government decided it needed more money? Couldn’t you actually have businesses going to the wall because they are not earning enough to pay tax.

  33. We had an underground economy long before the GST…to which I think our highly rated, complex and progressive income tax does more damage. When you consider the black economy effects of both, the theoretical stuff about consumption taxes being better than income taxes is still valid.

    I think we can have a couple of guiding principles:

    1. No new taxes.

    2. Abolish the worst taxes.

    3. Flatten and broaden remaining taxes.

    4. Run various scenarios, from revenue neutral to mildly libertarian (i.e remove duplication of services and justify spending on a CBA).

    5. Incorporate decentralisation measures like States funding the Commonwealth, not the other way around as it stands.

  34. DocBud, in the end all taxes have that defect. Even if the tax take drops because it is linked to economic activity, the proportion is set by the government – which promptly raises it if it wants more money. If you believe that GST rates are locked in by the implementation deal with the states that they would get it all, don’t you believe it. If it hasn’t gone up yet, that’s only because it’s more convenient to get it elsewhere and/or GST yields were rising anyway until very recently.

    That’s what happens to all firms, as the overall level of economic activity changes. It’s not like that for variations between firms. The system I described is only insensitive to the individual firms’ profit level in the short term, so it does mean that firms with lower profit levels don’t end up carrying more of a burden relative to others that are doing better, but it does mean they all have an incentive to work at full capacity or to get rid of stuff they aren’t using – the same logic that at the moment really only applies to labour.

  35. Mark Hill, you are right as far as you go with “the theoretical stuff about consumption taxes being better than income taxes is still valid”. Only, that analysis doesn’t cover the compliance issues, and a GST is not a consumption tax. As I pointed out before, it hits production (and then some), which means it hurts investment as well as consumption. I described what really goes on in this article.

  36. Incorporate decentralisation measures like States funding the Commonwealth, not the other way around as it stands.

    This does not get the attention it deserves. If we let the states raise the money then pay their dues to the federal government there would be a terrific check and balance and things would be much more in the open – the federal government would need to justify it’s expenditure to the states, who would be highly critical, and the states would have to justify to the people, who would also be highly critical. What we have now is a mysterious big brother who takes your money and puts it into a pot with everyone else’s, then dishes it out according to priorities you don’t understand. So the average joe considers that dead money, it just goes into the wheels of the bureaucracy and they wouldn’t have a clue of how to track the quality of government management. If the states raise the taxes and the health/justice/education system is rubbish, at least Joe knows who to rightly point the finger at.

  37. PM, I’m still confused. In a downturn firms might choose to use their assets less but wish to retain them for an upturn (this seems to be what Toyota is doing in Japan) so profits fall but taxes remain the same. Chances are in a downturn, getting rid of surplus capacity to reduce tax will not generate much income, if any, because if you have falling demand so will everyone else so noone will want your machines. If you scrap them to save tax you will have to replace them new when the economy turns up.

    At least with income/corporate tax no government would set the rate at or above 100% of what is earnt, but with property/asset tax what may appear a reasonable rate for one company could be crippling for another.

  38. Another idea that I have often thought of is the idea of a cap on how much income tax an individual can pay. It would obviously be a high amount ($10m, $20m?) that would not affect most of us, but it does strike me that surely there should be a limit on what anyone person is asked to contribute to the state’s coffers? I think that those who earn the really big money would be happy to settle in Australia knowing that writing a cheque for $10m or $20m would settle their tax affairs and remove the need for an army of tax accountants.

  39. Comment #47 sparked a memory of a book I recently read.

    Myth of the Robber Barons by Burton Folsom.

    An excellent book showing the superiority of free trade vs monopolists and government interference.
    One part of the book is about Andrew Mellon

    Andrew Mellon was Treasury Secretary and changed the tax rates.

    Cut the top income tax rate from 77 to 25 percent
    Cut taxes on low incomes
    Reduce the Federal Estate tax (Death Duties and Gift Tax)
    Efficiency in government

    His opponents in congress noted that he had given himself a bigger tax cut than the state of Nebraska, so he called for the tax rolls and other documentation and then told congress that he paid more tax than the state of Nebraska.

    Some states in the US issued bonds that were tax exempt and most wealthy people put their money into this or moved it out of the country. The lower tax rates encouraged investment and the money was being used for the betterment of the country.

  40. PM,

    The point is that income taxes have at least equally bad complicance issues as GST.

    I don’t see how it is a production tax. If you produce but don’t sell, you don’t get taxed.

    A few years ago property taxes looked good. If you run the numbers now, they simply are not politically saleable.

  41. The ultimate tax rate should be zero, with all revenues coming from fees paid for services chosen- even citizenship should be voluntary! However, if the LDP has the balance of power, it would need to work to this end gradually, going slowly to zero over a few terms, giving the economy time to adjust.

  42. DocBud, in a minor downturn the tax incentives would encourage people to maintain production even in a down turn. That’s a third option that you didn’t consider. They would only prefer to scrap equipment or dispose of it at distress prices for tax reasons if they really were at the edge – but then that’s really what they should do. The point is that this sort of tax has no marginal cost to production (in the short term); it works a lot like rents, i.e. it’s a fixed overhead. There’s only a serious problem if the government has an excessive tax take overall – but then the burden would drive firms out of business anyway, regardless of the tax system.

    You’re using far too much common sense when you write “with income/corporate tax no government would set the rate at or above 100% of what is earnt”. That is, you’re supposing that governments use common sense. It’s assuming that governments would never be so silly. But they are – see Pomperipossa in Monismania. What’s not clear from that is that they didn’t just do it to self employed people, it was just that with wage earners they used different points of impact so no one person saw that an increase in production led to more than 100% of the gain going to the state.

    On “the idea of a cap on how much income tax an individual can pay”, see my second bullet point at comment 20 above.

    Mark Hill, there’s no doubt that income tax is at least as bad as GST for compliance costs the way Australian political/bureaucratic culture does things. Nevertheless, because GST has the investment tax problem too, it moves to the head of my priority list for reform.

    You write “I don’t see how it is a production tax. If you produce but don’t sell, you don’t get taxed.”

    That is actually not true, it’s just that the tax on that is very well hidden. Someone who does that has paid the embedded tax on inputs bought from outside or at a transfer price from another part of the same organisation and doesn’t get to pass it on. The only people who wouldn’t do that would be those who made all their inputs themselves from freely available or personally owned natural resources within one organisation, e.g. a subsistence farmer stockpiling a crop surplus. See my discussion at the link I gave earlier in comment 45.

  43. Bloody hell PM, you’ve given me more ammunition than I’ll ever need in a tax debate with a lefty!

    http://en.wikipedia.org/wiki/Pomperipossa_in_Monismania

    102% marginal tax rate!

    Thank you very much. Factual examples of the destruction that taxes cause is something we must always keep in mind.

    What is the highest possible EMTR in Australia – excluding those on welfare to work transition (which we already know about and can be solved by the 30/30 etc)? Is there a business owner with an effective tax rate over 90%? Is there an employee somewhere who pays over 60% of their income as tax when all consumption and saving is spent?

    Ad for the GST, you might be right but I just don’t get it. Who can buy inputs without the right to claim input credits without being a consumer?

    I think I get your point about a farmer wishing to use GST affected inputs to build up a surplus of grass and mulch who wanted to increase the productivty of their land – this deters investment.

    Why is this distortionary if new investment homes are subject to GST?

  44. Mark Hill, every Australian firm buys inputs without the right to claim input credits, always. That is, they get a potential right which they cannot exercise unless and until they make sales. So, all their inventory and all their equipment etc. always has tax embedded in it that has not yet been reclaimed – because they haven’t sold it yet.

    This ignores any special exemptions and the fact that, if a firm is in a steady state with its inventory static, it will gradually have to pay tax on sales that flow through and it may be able to use those potential rights on inventory against the slight excess of tax due over tax prepaid, over time; it’s reasonable to ignore that since it’s a one off, it’s slow, and it doesn’t have an interest rate/discount factor for the time value of money. Try working it through on a spreadsheet for a firm just starting up, growing over several quarters, then going into a steady state. You’ll find that even if you can gradually get rid of tax prepayments, you get a long period early on with inventory that prepaid tax. That never comes back, and represents an outgoing that should be reckoned as a continuing stream of payments based on a discount factor. If the firm expands again you get another surge of prepayments like that, and so on. If the business finally winds down you may end up with credits you can’t use if you handle it wrong, or you may simply end up matching everything up – but, during the life of the business, tax was paid on capital as well as on sales (you have to remember to match everything to the correct time period, of course, because if you don’t it makes things vanish from not allowing for time value).

    However, I was mainly responding to the hypothetical scenario you proposed, with a firm just stockpiling inventory without selling it. The suggestion was that no tax would be paid, but I pointed out that it would be paid further upstream. It’s not an objection to the mechanism that it is ridiculous for a firm not to make sales; the question was about a firm that chose to do so, for whatever long term motives or whatever.

  45. I’ve got an idea to raise the profile of the ALS and/or the LDP…

    We have a competition with a cash prize – which Australian has the highest tax rate?

    I suggest two categories – welfare to work and unsupported.

  46. I mentioned this idea at the site talking about the conference this weekend! Can anyone bring along John Singleton? He once wrote a book on Anarcho-Capitalism and Australia, called Rip Van Australia.

  47. The first thing we must be clear on is that we cannot put up with any taxes on savings or earnings retained in the business. Any such taxes must go. And this goes for taxes based on irrational beliefs to do with the gas CO2. All such arguments in favour of CO2 taxes are made either via outright dishonesty or the advocacy of the toleration of dishonesty in public policy.

  48. Hello, I am a friend of Fleeced. At ytmnd.com, I am madDogSoldier. On youTube, nurbSoldier. Anyway, one important point I need to make is that whatever you do, do not propose ADDITIONAL taxes as an attempt to be less burdensome than current taxes. What the powers that be (statists) will do is simply jump for joy at these new taxes, but then forget to drop the current ones.

  49. Dog,

    I think is that is one of the preconditions I have outlined above @ 42. But I also totally agree and have been persuaded by others that any single tax shouldn’t be increased.

  50. Yep – Dog’s nailed it on this one… Alas, many fellow-libertarians do not agree – and seek to endorse a “more efficient tax” (such as a carbon tax). Whilst I can see their point of view, I think it is a bad idea – not just for the reasons Mad Dog points out, but also because it’s much easier to sell the notion of “no new taxes”.

    Economists in particular seem to enjoy thinking up new and innovative ways to impose tax. Remember, if the tax burden was as low as it should be, the method of it’s collection would make little difference. This is where our efforts should be concentrated.

    I think the best “libertarian tax idea” is not a new tax, but to cap the budget to current levels – allowing only for inflation/population growth. This was cause a gradual decline in tax as a percentage of GDP over a decade or so.

  51. There is a book called The Dosadi Experient by Frank Herbert.

    In it you have a Bureau of Sabotage, meant to curb government excesses generally by assassination.

    However the interesting thing is the alien race called Gowachin, their lawyers work in a court arena and the losing lawyer dies, litigation is understandably rare.

    When they make a law the previous law is dissolved. They want less laws not more, less government control.

    Which brings me to the point, when a tax law is mooted there should be a removal of another, as the targeting of the old law, is not working correctly.

    So less laws, not more, and any future legislation should result in the repeal of an old law that is not working or useless or silly, for example a supposed law in Georgia US, You have the right to commit simple battery if provoked by “fighting” words.

    There are many court cases attempting to define “fighting words” and how far the defence may be used.

    Part of the problem, and why it is interesting, with the discussion at hand is everyone has a different threshold or tolerance of government. Police force? Standing Army? Income tax or consumption tax.Any discussion like this is people trying to explain how little government they want.
    In the words of Lewis Carroll

    “The question is,” said Humpty Dumpty, “which is to be master – that’s all.”

    Also I hope everyone here has submitted their ideas to the tax reform people.

  52. A carbon tax would be far worse than any sales tax, property tax, corporate tax or income tax. A carbon tax taxes you for being alive. There is no escape, unlike with the other taxes. Besides, a carbon tax is based on junk science anyway. There should be no concession to such proponents.

  53. Okay, suppose the carbon tax is 102%? You can escape that odious income tax of 102% by simply earning less or by earning nothing at all, but not so with the carbon tax.

  54. Besides, what makes you think that your other taxes will go down just because a new one is added on? Maybe that would be the case if governments were staffed exclusively by members of various Libertarian and LDP party members, but other than that, forget it.

  55. Mad Dog — from a consumers perspective, a carbon tax would effectively be a tax on fuel and a tax on electricity. We already have both and so far we haven’t seen the end of the earth.

    As for the science, I don’t see how anybody can be as certain as you are. To have a strong opinion about the climate in the future seems to me to include a certain amount of guesswork or faith.

    Fleeced — the debate about whether to have a carbon price seems to be lost. The only debate left is whether we make it easy to remove later and combine it with tax cuts… or whether we make it hard to remove, extra costly and linked with more spending. Given those choices, I think it makes sense for somebody to defend the first option.

  56. The debate is only lost in parliament according to a recent poll on ABC.

    On the question of: Should the Federal Opposition support the Government’s carbon pollution reduction scheme. The results were No- 64.1% Yes – 35.9%

  57. “from a consumers perspective, a carbon tax would effectively be a tax on fuel and a tax on electricity. We already have both and so far we haven’t seen the end of the earth.”

    This is a terrible argument. No one here is arguing that a carbon tax will bring about Armageddon and the four white horses with the horsemen of the apocalypse. A number of very bad political decisions have been made that have not brought the end of the earth. Doesn’t mean that such a bad idea should be followed.

    Your argument amounts to bending over and letting the governments tax us willy nilly. Your country already pays enough taxes. If they do not have enough money by now, they likely never will, even if the income tax rate were 100%.

    Giving them more tax money does NOT encourage fiscal responsibility. Places with higher taxes often have LESS fiscal responsibility. Just look at the states of California and New York in the USA. They have among the highest tax rates in the USA, yet they have some of the worst debts. Nor does having higher taxes discourage corrupt lobbyists and other influences. The reverse usually is true, due to the fact that there is more money for lobbyists to get their hands on.

    To make matters worse, such higher carbon taxes on things like electricity and gasoline hurt the poor the most. They have to use these things like everybody else. Because they have less money to spend, they would have to spend a higher percentage of it on such basic necessities. If you take a look at the members of these green organizations who propose the carbon tax, you will typically see well-to-do and preppie airheads. Do you really think that some poor community activist would actually propose higher costs of gasoline and electricity?

    Another thing is that even if all the people who paid the carbon tax were not poor, you would still be discouraging consumption and production. If the anti-tobacco nannies make a strong argument that taxing tobacco higher will reduce its use, then it is only logical that the same would occur with energy. This creates a greater risk of economic decline.

    Another thing is that levying a carbon tax would effectively give the greens an untold amount of political power. They have a far greater bargaining position whenever they want to further micromanage people and economies, due to the precedent that has been sent. They will say things like “what do you mean you won’t pass this bill to help the environment? We already have a carbon tax, don’t we? We have all these other environmental regulations, don’t we?”

    The fact of the matter is that the greens are another cynical political lobbying group, just like any other. They cleverly rely on people’s altruism to push their way around in politics. And when people don’t go along with that, they resort to vicious threats. They resort to hysterial fear-mongering propaganda.

    You should read about all the scientists who have had their life threatened for going against their will. Eliminate the cute and fuzzy images of tree huggers and flower children out of your mind. Replace it with that of demented and fanatical cultists, comparable to scientologists. Remember that it has been proven that many of these folks are avowed communists and socialists. Go to any of their rallies and you will clearly see a large number of placards that say “down with capitalism”. We have every right, nay, duty to be skeptical of the things that they say.

    “As for the science, I don’t see how anybody can be as certain as you are. To have a strong opinion about the climate in the future seems to me to include a certain amount of guesswork or faith.”

    I don’t know whose post you read, because it could not have been mine. There are a lot of things about the science of climatology that I am unclear on. I do not make any statement that the earth is warming or the earth is cooling. I do not assert that man is responsible or not responsible for any of it. I also do not assert that any kind of climate change will be bad, good, or happen at all.

    However, I will assert that many environmentalists are utterly hysterical, they propose horrifying legislation, they have unlimited faith in government, absolutely no faith in people. One does not have to be an expert historian to know that governments do not accomplish the majority of what they claim they will do, but they do seem to be somewhat good at bombing people and collecting taxes. I refuse to take seriously anyone who proposes that it is a meaningful solution. I refuse to take seriously such hysterical people who are not above using slander, threats and misinformation to further their cause. In some cases, the nastier ones even hurt people and destroy property.

    To conclude, there is simply no good reason for a carbon tax.

  58. A carbon tax on petrol and electricity that replaces the existing fuel tax would be a good thing in economic terms. The Greens would support it so no harm in using them (they may be reluctant but they would support it). Such a carbon tax increased whilst income tax or payroll tax is reduced would also be a good thing. The Greens would support it so no harm in using them. I don’t know why you are so scared of using the Greens to achieve worthy reforms. Taxing carbon in the absents of any link between carbon and global warming is arbitrary but so is taxing fuel or payroll or income. The idea of a major party putting an income tax cut package on the table in these terms and seeing the Greens vote for it tickles me pink. And if they vote against it then that would also be very amusing.

    If your concerned about the poor then cut payroll tax before income tax. And then cut income tax by enlarging the tax free bracket.

    The only party that I think this policy position would really work for is the Liberal party. The Greens just want to ban coal so for them a carbon tax would be a policy retreat. The ALP are now wedded to an ETS. The Liberals have room to move and sufficient political musle. They also have their economic reputation to defend so they would be trusted (probably wrongly) to stick with a revenus neutral promise. They may alientate a certain group of people but where can that vote realistically go?

  59. Mad Dog,

    You’re presuming that this would lead to higher fuel and energy costs.

    John’s idea is to flatten the tax rate and broaden the base, and to have compensatory income tax cuts. This is no different from any GST proposal that has seen Parliament or an election.

    How is this not better than what we have? Why is petrol taxed doubly whereas coal is taxed once and metal smelters get subsidies, net of taxes for use of coal fired electricity?

  60. As I’ve said before, you’re delusional if you believe that a carbon tax will simply be a broadening of existing fuel tax at a lower rate. There is absolutely no way in heaven or hell, that the greenies would accept a “carbon reduction” policy that results in lowers petrol prices.

  61. “A carbon tax on petrol and electricity that replaces the existing fuel tax would be a good thing in economic terms.”

    Why? Would the carbon tax be lower than the existing fuel tax?

    “The Greens would support it so no harm in using them (they may be reluctant but they would support it).”

    Of course they would support the carbon tax, they dreamed it up, didn’t they?

    “If your concerned about the poor then cut payroll tax before income tax. And then cut income tax by enlarging the tax free bracket.”

    Absolutely. But I am also saying don’t stab them in the back with higher taxes on the basic things they use like gasoline and electricity.

    “Such a carbon tax increased whilst income tax or payroll tax is reduced would also be a good thing.”

    If the second part happens, you might want to check the air for flying pigs. Besides, I don’t believe in taking one step forward, two steps back. In all likelihood, it would be one step back, then two steps back.

    “The idea of a major party putting an income tax cut package on the table in these terms and seeing the Greens vote for it tickles me pink.”

    It’s fun to dream, isn’t it?

    “The Greens just want to ban coal so for them a carbon tax would be a policy retreat.”

    They could have easily gotten rid of most coal usage had they not keep getting in the way of building nuclear power plants.

    “You’re presuming that this would lead to higher fuel and energy costs. ”

    Because it would. Whenever a seller is mandated to collect a tax on his/her product, the seller simply passes it along to the buyer. If a seller has to now collect an additional 20 cents per gallon of gasoline, then each gallon is 20 cents more expensive for everybody.

    Oh, and, what Fleeced said.

  62. Mad Dog – The Liberals are not going to try the suggested carbon tax option, they have opted for picking winners instead. And the ALP is going to stick with the ETS. So you and I are both dreaming. I think my dream is a little more within reach than yours is but yes I’m still dreaming.

  63. Fleeced – I’d love to see the Greens vote against such a proposal. Imagine the fun the media headlines would be; “Greens oppose carbon tax”. Suddenly they would be red on the outside instead of on the inside.

  64. Presumably Fleeced thinks they would be put off by cuts in fuel tax. And others think they would be put off by cuts in income tax. I think they would like to oppose such cuts but if it came as part of a carbon tax package I think they would be snookered in political terms.

  65. Mad Dog pushes an idea I think is worth entertaining – analysing carbon emission reductions without tax. If you don’t include this in the terms of reference of your analysis, I doubt you’ll even marginally support it.

  66. Fleeced — I agree that my proposal probably won’t be accepted by the major parties. That is because they are already committed to a proposal which is far more socialist.

    If we can convince them to shift to a better approach, I think that’s a good thing.

    In contast, you are arguing for something even less likely, and then accusing me of being naive. That simply doesn’t follow.

    From Mad Dog’s comments, it is clear he hasn’t actually read my carbon tax proposal. If my approach was taken the size of government would decrease, and under one option the price of petrol would decrease.

    Yes, this is a 2nd best option. I would prefer to simply abolish all taxes. But when I’m not waxing lyrical about the libertarian world I want, I sometimes get involved in the real political debates of the day, and offer more moderate “lesser of two evil” options.

    I am happy that there are radical libertarians out there who share my dreams. But I think their refusal to engage in the pragmatic political debates of the day, and insist on only talking about “pure” policies, can sometimes reduce their influence.

  67. “In contast, you are arguing for something even less likely, and then accusing me of being naive. That simply doesn’t follow.”

    What he probably means is that your solution has the potential to make the problem worse by them agreeing to add a new tax, but not taking away any of the current ones.

    “From Mad Dog’s comments, it is clear he hasn’t actually read my carbon tax proposal. If my approach was taken the size of government would decrease, and under one option the price of petrol would decrease.”

    You didn’t answer my question as to whether the carbon tax for gasoline would be lower than the current fuel tax for gasoline.

    “I am happy that there are radical libertarians out there who share my dreams. But I think their refusal to engage in the pragmatic political debates of the day, and insist on only talking about “pure” policies, can sometimes reduce their influence.”

    Radicals are like Ron Paul who raise $24 million US Dollars and a million and a half votes in the primaries. He demanded to immediately bring the troops home from all nations, shut down the federal reserve central bank, kill the income tax, end the war on drugs, shut down the department of education, energy.

    “Pragmatists” are like Bob Barr who offer Diet Soda versions of those ideas and only get $1.25 million campaign dollars for the general election and then a mere 500,000 votes.

  68. “You didn’t answer my question as to whether the carbon tax for gasoline would be lower than the current fuel tax for gasoline.”

    Yes they would be.

  69. But I think their refusal to engage in the pragmatic political debates of the day, and insist on only talking about “pure” policies, can sometimes reduce their influence.

    I’m hardly a purist… far from it, in fact.

    The pragmatism of making compromises for “2nd best” or “least worst” solutions makes perfect sense… if you have a power base. We don’t. Regardless of how we soften our position, we are still the extremists… and if we are to ever gain power (via LDP), then pragmatism demands we use effective propaganda.

    The word “propaganda” applies, regardless of whether the information we seek to spread is true or false (it’s true, of course) – but propaganda works better with simple slogans such as “no new taxes” than with concepts such as “let’s have a new tax: a revenue-neutral broad-based carbon tax, which spreads the burden of the current fuel tax (or payroll/income tax, if you prefer) across various carbon-emitting enterprises”. The former is salable, the latter is not. That’s how propaganda works.

    OK, assuming we’re lobbying government, rather than voters… do you seriously think we have any persuasion? Sure, get you’re “2nd best” idea out there via institutions like CIS, but ALS (and LDP) need to be the extremists people think we are. If we move our tent-pegs further to the center, then whatever compromises are reached (without our involvement), will potentially move with them.

  70. Mad dog — my original article answered your question. Ron Paul and Bob Barr had pretty much the same policies. Both were good. And a carbon tax is already 99% likely. I’m trying to link it to tax cuts.

    Fleeced — not every libertarian debate is about the LDP. And while it would be nice to have the more radical position in the public debate, the reality on the ground is even the idea of a carbon tax (instead of the worse option of trading) isn’t currently in serious consideration. It would be nice to sit back and wait for a mysterious other person to open up the debate… but I fear they aren’t going to show up in time.

  71. John, I think you should have taken a closer look at those two campaigns. For starters, Ron Paul advocated the abolishment of the federal reserve. Barr did not. Same thing with the income tax. Big differences just to start off with.

    “And a carbon tax is already 99% likely.”

    “the reality on the ground is even the idea of a carbon tax (instead of the worse option of trading) isn’t currently in serious consideration.”

    A 99% chance of a carbon tax means that it is not under serious consideration? Did you mean to include a decimal point in that number?

  72. I think what John means that a carbon tax is 99% likely, but a Carbon Tax Plan (as in his policy document) isn’t even being considered.

    An ETS is still, in a sense a tax, but it’s a far worse form of “taxation” than a direct tax on emissions.

    Mad Dog- assume no tax is not an option- do you prefer a Carbon Emissions Trading Scheme or a Carbon Tax?

  73. Mad dog — my first quote should have said “a carbon price” or “something equivalent to a carbon tax” is 99% likely.

    I followed the Paul & Barr campaigns closely. The differences between them were insignificant compared with the difference between them and everybody else in the race. The only consequence from splitting the libertarian movement is to weaken the libertarian movement.

  74. Abolishing US federal income tax is far less radical than abolishing Australian federal income tax. I’m in favour of both.

    Fleeced I don’t think that the LDP should adopt a carbon tax as policy. However in discussion with other parties I think it should openly refer to a revenue neutral carbon tax as a reasonable compromise solution. However the Liberal Party should adopt a revenue neutral carbon tax as policy.

    John – when does the combined ALS tax submission happen?

  75. Even if I did that, knowing details about this submission would help with guidance about style and content over and above what the submission guidelines themselves provide.

  76. “If you want to make a personal submission to the Review, the deadline is 1 May 2009”.

    Actually, “If you would like to make a submission specifically on the retirement income system, you have until 27 February 2009”. I put one in and they acknowledged receipt, so eventually it will probably appear here. Later, I will make a submission for the other part, but meanwhile here is the body of this one with my contact details removed:-

    Submission to the Henry Tax Review – Retirement Income System

    P.M.Lawrence

    A phased approach to increasing age pension adequacy and improving personal saving for retirement

    Background

    In Australia as in many developed countries, demographic changes indicate the possibility of stress on pure age pension systems in future. This would arise from the combination of a higher ratio of retired to working age people, and/or an insufficient increase in productivity and production to make up the shortfall. Heading this off would involve more investment to increase productivity and production, and/or changes to migration and family policies to address the demographics directly (but these would also involve more investment for the needs of those demographic cohorts). These issues apply whether the needs of the retired are met through the age pension system or through superannuation, private savings and investments, or in any other way.

    From the narrow perspective of age pensions alone, there is an obvious remedy: simply raise the age pension entitlement age, so that recipients form a smaller group and workers a larger one, so restoring a ratio that provides adequacy. However, this moves many problems to other policy areas and to the other pillars of the system. In particular, it does not address the investment issue or the need to maintain employment levels, both for the older workers and for the wider population. At the individual level, people coming up to retirement would face a major hurdle in planning and providing for retirement and/or continuing to work if they faced a large or abrupt increase in the entitlement age.

    In the following material I outline recommendations to address these other problems, apart from employment levels, which I shall cover in another submission to the main part of the tax review.

    Recommendations

    For present purposes, I am assuming that there will be an increase in the entitlement age for age pensions. This is no great assumption, as it covers a wide range of possible increases and phasing in, including making no change. Exploring this range permitted comparison with present arrangements and led me to definite recommendations:-

    (1.) Commencing as soon as practical, phase in an increase of the entitlement age, by 1 year for every 2 (say) calendar years that pass until the entitlement age reaches 70 (say). The precise numbers may vary, and the upper age need not be determined straight away. Age pensions for this smaller group should be increased to maintain adequacy for them as needed, based on CPI rather than wage levels but not means tested so as not to create adverse incentives for the other pillars. This strengthens the adequacy of the age pension pillar fast enough to head off problems in that pillar while providing time for the other recommendations to strengthen the other pillars, flowing through further saving in those to investment. This measure targets the age pension pillar.

    (2.) Cut personal income tax in step with reductions in outgoings on the age pension system to allow individuals to save more through the other pillars, superannuation and voluntary saving. To encourage this, and to target the savings so that they flow through to investment of the sort that will support the lifestyles of people becoming more dependent on these pillars, implement much of these cuts by increasing superannuation income tax concessions, indexed to a proportion of the average wage. Ideally this could be as high as (say) 16% or approximately one sixth, but this is likely to be too high to be realistic in the near future because of the need for the tax base to fund other policy objectives outside the retirement area and because funding needs for age pensions will only fall gradually. Therefore this proportion should be increased from time to time as circumstances warrant, rather than determined and set up from the beginning of these reforms. This measure targets the superannuation pillar.

    (3a.) Target personal income tax cuts further, to people approaching retirement, by setting up a tax cut age matched actuarially to the entitlement age. This age would fall in step with increases in the entitlement age, in such a way that younger people would be largely unaffected while older people would have a window allowing them to save for retirement more effectively. This is more equitable as so much of their financial planning for retirement has already taken place without being able to anticipate these reforms, yet it does not come at the expense of younger groups as these will also benefit from this window in their turn. As this window corresponds to a shorter time horizon until retirement, the older group falling within the window has a greater incentive for saving over current consumption. This measure targets the voluntary savings pillar.

    (3b.) Alternatively, rather than target tax cuts by age, set up a distinct SAYE (Save As You Earn) fund somewhat like those found in Singapore and other countries and make compensating income tax cuts across the board. This reduces the complexity of the tax system itself by separating various things off – modularisation. This fund should have three main features: a progressive contribution structure (say, 10% of income above a threshold); a cap, savings above which could be drawn down (say, of the order of the $289,000 cited in note 2 of page 8 of the Retirement Incomes Consultation Paper, suitably indexed); and, a cap reset age actuarially matched to the age pension entitlement age as described above, when the cap would be reset to zero allowing people to draw down their savings (if they predeceased this age, their savings would be freed up for their estates at the date at which they would have reached that age). Additionally, it may be convenient to do any or all of the following: shift superannuation income tax concessions to this scheme, crediting these superannuation savings towards the cap, to assist the modularisation; rather than credit interest to individual accounts, waive fees and apply interest/usufruct to the age pension pillar or even to consolidated revenue generally (reducing the degree of hypothecation); and, integrate it with other funds like the Future Fund to the extent that this gives true synergies rather than a reduction in modularisation. This allows more flexibility, both in regard to existing political commitments to personal tax cuts which would not apply to the SAYE scheme, and in regard to how people could direct their income (as they would not be constrained once they reached the target set by the cap). This measure also targets the voluntary savings pillar.

    Effects on the areas of equity, risk, myopia and institutional failure

    Clearly recommendations (3a.) and (3b.) above address intergenerational equity that would otherwise be adversely affected by recommendation (1.), and all the recommendations address equity broadly.

    The Retirement Incomes Consultation Paper describes the risks as political risk, investment risk, inflation risk and longevity risk (page 31 and elsewhere). Recommendation (3b.) addresses political risk by increasing transparency so that “raiding” would be visible, and by reducing incentives for raiding by making usufruct available to governments. Recommendation (1.) addresses investment risk at the upper end, by minimising longevity risk so that individuals do not face adverse incentives to over-invest. Recommendations (2.), (3a.) and (3b.) address the rest of investment risk, also providing suitable incentives and opportunities to avoid institutional failure. Inflation risk is addressed partly by the indexing explicitly present in the recommendations or implicit in their increases of individual discretion to allocate funds and in the shorter time horizons needing to be covered because of recommendation (1.), and partly by increasing the scope of governments to increase the adequacy of age pensions because recommendation (1.) reduces the size of the group needing them over time.

    Between them, all the recommendations address myopia. However, a rational response to investment risk may be misunderstood as myopia; the value of savings and investments depends on future revenue streams, which may be uncertain. There is a little known feature of this variation, that it may well grow exponentially even faster than the exponential growth of the savings and investments (I have confirmed this for simple cases, using the repeated composition of Probability Generating Functions). This means that, no matter how much an investment portfolio is diversified, eventually any investment strategy collapses. In many cases, what appears to be myopia is in fact a sound approach to exponentially increasing uncertainty over longer time horizons, particularly for superannuation with fees and charges (we may be seeing some of the consequences of this now). The combination of recommendations above mitigates this difficulty as much as is practical, by providing a mixed approach. The very longest time horizons are covered by the age pension pillar, using the greatest possible diversification through the resources of the whole politico-economic system. Medium time horizons are covered by the superannuation pillar, with some diversification, and shorter time horizons are covered by the voluntary saving pillar.

  77. John – you said you were going to compile this into an ALS submission. The deadline is fast approaching. How is it going?

  78. Well, the deadline has now passed. I put in a submission and have posted the body of it with links to the sources for the appendices at John Quiggin’s latest Weekend Reflections, though it has yet to get past moderation. If anyone wants I can put it here too, or email it in for a guest post, or whatever. And it would certainly be interesting to see the ALS submission…

  79. The ALS submission was sent in yesterday by John. I’ll leave it to him to post the details.

    PML I thought we had given you access to post here? If not then send it to me and I’ll put it up as a guest post.

  80. Pingback: ALS Submission to Henry Tax Review « Thoughts on Freedom

  81. could we discuss the idea of negative income tax..
    that is we do away with all the wewlfare depts and simply declare a poverty level that we can afford all those who do not make this we make it up.. all welfare is then run through the tax dept..
    can we also abolish all education departments and declare all schools independant and the education dept only duty is to enforce community standards..

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  83. “Terje has recently blogged about his submission to the Henry Tax Review and has encouraged other libertarians to make a submission. His ideas were (1) indexing the tax-free threshold; and (2) tax-free re-investment of profits by businesses.”

    Yeah excellent. Except that I’d want to keep moving the threshold up. Just dissolve one department after another and some of the loot go to pay off debt and some of it go to move the threshold up. But the main point here is that reinvested profits must be sanctified and should be from tomorrow. Even if we had to put some other taxes up. Even if we had to invent new taxes. Or if we decided that dividends were to be always taxed at 50%. Or if we decided that the excess over 200, 000 in salaries would attract a 50% tax. Or even if we decided that big business was a bad thing, and said we were going to tax TOTAL REVENUES, in excess of one billion at 5% …..

    …. Some may think that all of the above suggestions are outrages, and I can see their point of view. But none of these comparative outrages, comes even a little bit close to the mindless destruction of taxing retained profits. Because all our jobs come from the pursuit of retained profits, and in the longer run, all of our wealth comes from the actuality of retained profits.

  84. “2. Implement a revenue-neutral carbon tax”

    Why Jarrah? Explain yourself? What is the point of the exercise? Do we have a cuckoo baby in the nest? Its unacceptable for any change in taxation to be revenue neutral. All proposed changes must come with department closures. But quite apart from that, what is this JIVE about a carbon tax? What is it that you hope to achieve with this “carbon” tax and why?

  85. “could we discuss the idea of negative income tax..
    that is we do away with all the wewlfare depts and simply declare a poverty level that we can afford all those who do not make this we make it up.. all welfare is then run through the tax dept..
    can we also abolish all education departments and declare all schools independant and the education dept only duty is to enforce community standards..”

    This is all good stuff. But we need to bring a new ruthlessness to mass-sackings, and government department closures, before ever whispering about negative income taxes. The main thing is to bring the tax-free-threshold up from the ground, by way of massive spending cuts to departments we don’t need. Only then will we be likely to be able to think clearly about this “negative income tax” concept.

  86. “A carbon tax on petrol and electricity that replaces the existing fuel tax would be a good thing in economic terms. The Greens would support it so no harm in using them …”

    See Taya, you cannot ride that lying Tiger. You think you can ride the lying Tiger but you cannot. You think you can grip ahold of its ears, and that you (and only you) can control it, but you cannot.

    I am concerned with easily-accessable resource usage. Now I can imagine making a deal with the Greens, to increase State Royalties on non-renewable resources, that were close to hand, so long as they got rid of the company tax, and leasing fees, for the industry. And so long as I could get the relevant states to run strong surpluses thereafter. And I could even agree to having such obnoxious royalties that they reduced the rate of depletion of coal and therefore CO2 release.

    The difference is that you would have rolled over for science-fraud and for a lie. You would have decided that you think you can ride the lying Tiger. Whereas in my example, I’m saying, to their face, that the Greens are full of shit, but I’m willing to do business, and cut a deal.

    Don’t ride the lying Tiger. Don’t think you can hold its ears. Don’t think you can control where she goes. Don’t think you can fine-tune who she eats.

    Don’t do it Taya.

    Hell aint half full.

    Don’t try it on.

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